Electronic Bills of Exchange and Promissory Notes in Australia
| Author: |
Gonzalo Villalta Puig
|
| Issue: |
Volume 7, Number 3 (September 2000)
|
Notes
- Is it desirable and feasible to legislate for electronic bills of exchange and promissory notes? To answer the question of desirability,
one must take into account both the costs and benefits that would be involved in enacting such legislation. If considered in isolation,
the costs to government and business would not appear to be substantial given that an Act to remove legal impediments to electronic
commerce, as a whole, commenced by Proclamation on 15 March 2000. However, the costs involved in enacting legislation specifically
for electronic bills and notes would be seen in a somewhat darker light if one were to consider that the existing legal framework
already recognises, if only by implication, their validity. On the other side of the balance, the benefits that would flow from the
certainty that legislation would bring to this particular area of electronic commerce are many. And, as the Electronic Transactions
Act (1999) (Cth) attests, these would appear to outweigh the costs. Given that it would appear to be desirable to legislate for electronic
bills and notes, one must ascertain whether it would be feasible to do so. This is the less significant of the two questions that
will be discussed in this article for there seems to be little doubt that there are neither political nor constitutional impediments
barring the enactment of such legislation. In conclusion, the thesis of this article is that it is both desirable and feasible to
legislate for bills and notes issued in an electronic format.
- In order to assess whether it would be desirable to legislate for electronic bills and notes, one must not only consider the benefits
that would be involved in enacting such legislation but also the costs. Given that electronic bills and notes cannot be adequately
understood in a context other than that of electronic commerce, to simply analyse the costs that would be involved in legislating
for these two types of negotiable instruments would be a very narrow exercise. It is all the more appropriate to analyse the costs,
(to government, business, and community), that would be involved in legislating to remove existing legal impediments to electronic
commerce. These are discussed in the Explanatory Memorandum accompanying the Electronic Transactions Bill (1999) (Cth).[1]
- Insofar as government would be concerned, depending on the way that legislation were developed and implemented, time and resource
costs may be significant. Business would also incur costs. In the absence of a principled approach to the legislation, business would
be unable to determine what electronic communications technologies would best suit its particular commercial needs. Moreover, unless
the legislation was uniform and of national application, the value of certainty would be lost and business confidence and trust in
the legal effectiveness and reliability of electronic commercial transactions would be further diminished. Finally, the Memorandum
notes that "[t]here would be no apparent cost to the community".[2]
- Encouraged by this last observation, proponents for the enactment of legislation for electronic bills and notes would dismiss the
costs involved in their proposal as being of little substance. But, if this were really the case, why is it then that when asked,
"[d]o we need a set of new laws for electronic commerce?", the Security Law and Justice Branch of the Attorney-General's Department
answers:
No... It is the Commonwealth Government's view that our legal system is, subject to some minor adjustments, generally able to deal
with the issues raised by electronic commerce.[3]
The fact is that Australia's existing legal framework already recognises, if only by implication, the legal validity of electronic
bills and notes. - In Australia, both bills of exchange and promissory notes are governed by the Bills of Exchange Act (1909) (Cth). For bills (subsection
8(1)) and notes (subsection 89(1)) to be valid, the Act requires, amongst other things, that they be in writing and signed. The issue
is whether electronic bills and notes satisfy these two statutory requirements.
- Insofar as the first requirement is concerned, section 25 of the Acts Interpretation Act (1901) (Cth) states: "... 'writing' includes
any mode of representing or reproducing words, figures, drawings or symbols in a visible form". The contents of electronic bills
and notes may be represented or reproduced in a visible form either, as Gamertsfelder illustrates, on a computer screen or print
out.[4] Thus, it would appear that electronic bills and notes satisfy the requirement of writing imposed by subsections 8(1) and 89(1) respectively.
- With respect to the second requirement, neither the Bills of Exchange Act (1909) (Cth) nor the Acts Interpretation Act (1901) (Cth)
define the circumstances in which an instrument will be deemed to have been signed. In R v Moore; ex parte Myer, Higinbotham J outlined
the legal criteria for valid signatures under the common law:
... a signature is only a mark, and where a statute merely requires that a document shall be signed, the statute is satisfied by proof
of the making of a mark upon the document by or by the authority of the signatory.[5]
Given the tone of the above definition, the encryption technology currently employed to (digitally) sign electronic bills and notes
would appear to satisfy the requirement of signature imposed by subsections 8(1) and 89(1) respectively.[6] In the words of McCullagh and Schneier, digital signatures are marks that not only identify the person attaching the signature but
also preserve the integrity and authenticity of documents in an electronic format.[7] - Writing and signature are two of the several requirements that bills and notes must satisfy in order to be valid under the Bills of
Exchange Act (1909) (Cth). It has been established above that electronic bills and notes satisfy those two requirements. Therefore,
one may imply with a certain degree of confidence that electronic bills and notes qualify as valid negotiable instruments under the
Act. Without a doubt, negotiability is the alma mater of bills of exchange and promissory notes. Both instruments should be capable
of being transferred by way of indorsement and/or delivery from one person to another in such a manner as to constitute the transferee
their holder with a right to enforce the payment obligation against the underlying debtor (subsection 36(1)). The compatibility of
electronic bills and notes with the quality of negotiability associated with their paper-based counterparts should not be questioned.
Electronic bills and notes are truly negotiable instruments. With the assistance of electronic communications technologies, they
are bound to become the fastest and most easily transferred payment and credit instruments in the commercial world.
- One legal issue that does not necessarily relate to the validity of electronic bills and notes under the Bills of Exchange Act (1909)
(Cth) but to their commercial utility is whether electronic bills and notes can be adduced as evidence in an Australian court of
law. Having considered the UNCITRAL Model Law[8] and Wright's studies on this issue, Gamertsfelder concludes that, so long as they are duly authenticated, computerised records are
generally admissible as evidence.[9] For instance, section 69 of the Evidence Act (1995) (Cth) states that the hearsay rule does not apply to a document that "... is
or forms part of the records belonging or kept by a person, body or organisation in the course of, or for the purposes of, a business".
Pursuant to the Dictionary in Part I of the Schedule to the Act, a document "... means any record of information, and includes: (c)
anything from which sounds, images or writings can be reproduced with or without the aid of anything else". Thus, it is clear that
any computer-produced material, including electronic bills and notes, as well as all forms of computer output may be adduced as evidence
in court.[10]
- This article has assessed the desirability of legislating for electronic bills and notes in reactive terms. In the course of doing
so, it has established the validity of electronic bills and notes under the existing legal framework in Australia. This has been
done by way of implication since the Bills of Exchange Act (1909) (Cth) does not refer specifically to bills and notes issued in
an electronic format. The fact that the legislature has not expressly affirmed the validity of these two types of negotiable instruments
may discourage their use in commercial practice because merchants are sensitive to legal uncertainty. Thus, the Commonwealth Parliament
should seriously consider the reassuring effect that the enactment of legislation specifically declaring the validity of electronic
bills and notes would have in the business community. Any such consideration would, however, have to take into account the political
and constitutional feasibility of the proposed legislation.
- The potential for computer fraud is one factor that weighs against the enactment of legislation expressly recognising the validity
of electronic bills and notes. Neither government nor business would wish to encourage the use of an instrument vulnerable to fraud.
However, modern encryption techniques virtually rule out the possibility of online fraud in the course of the transmission and receipt
of electronic bills and notes. As Gamertsfelder asserts, there is no reason to believe that electronic bills and notes should be
less secure than their paper-based counterparts.[11]
- While there may be no political obstacles to the enactment of legislation recognising the validity of electronic bills and notes,
there may well be constitutional ones. Subsection 51(xvi) of the Commonwealth Constitution states: "[t]he Parliament shall... have power to make laws... with respect to: bills of exchange and promissory notes". The issue
is whether the Commonwealth Parliament has power to make laws with respect to electronic bills of exchange and promissory notes.[12] Resolving this issue would involve assessing the extent to which subsection 51(xiv), as an express head of legislative power, encompasses technological innovation. The High Court of Australia has held that the ambit
of the express heads of power contained in the Constitution extends to any technological changes affecting the several policy areas to which they each relate. Thus, in McGinty v The State of
Western Australia, Toohey J expressed the view that "... whilst the connotation of words in the Australian Constitution remain fixed, their denotation may vary over time ...traditionally where there have been technological advances".[13] Drawing an analogy between the cases decided in this area and the technological evolution of the information economy, it would appear
that the Commonwealth Parliament has power to ratify the validity of electronic bills and notes. That this is the case is manifestly
demonstrated by the fact that the Commonwealth Parliament has already enacted the Electronic Transactions Act (1999) (Cth), an Act
to remove legal impediments to electronic commerce generally.
- There appear to be no political or constitutional impediments to the enactment of legislation for electronic bills and notes. In other
words, it would be feasible to legislate for electronic bills and notes. But, feasibility aside, one must consider the desirability
of such legislation in proactive terms, that is, in terms of benefits. As was the case with costs, it is important to analyse the
benefits from the general perspective of legislation to remove existing legal impediments to electronic commerce. The call for the
statutory recognition of the validity of electronic bills and notes must, out of practical necessity, be part of a broader strategy
for the recognition of the validity of all electronic commercial transactions.
- All interest groups identified above would benefit from the enactment of uniform, clear legislation that removes existing legal impediments
to electronic commerce.[14] From the government's perspective,[15] legislation would further the national and international development and usage of electronic commerce. Moreover, legislation would
facilitate the international recognition and enforcement of Australian electronic commercial transactions, thereby, protecting the
rights and interests of consumers who engage in such transactions.
- Business would also benefit.[16] First, legislation would broaden the range of types of transactions that could be conducted electronically. Similarly, legislation
would boost confidence in the legal validity of electronic commercial transactions, thereby, encouraging the use of such transactions.
Further, legislation would reduce not only the need to resort to litigation to seek a determination on the legal effectiveness of
the use of electronic communications technology but also the costs of preparing contractual arrangements to deal with impediments.
Finally, legislation would enable business to compete nationally and internationally through the use of electronic commerce technologies.
- The community would benefit too since "[l]egislation would provide a certain and secure framework for electronic transactions between
members of the community and government, business and other...".[17] In addition, it seems likely that legislation would "... increase community access to electronic information about a wider range
of goods and services".[18]
- Because of the perceived benefits, the Attorney-General introduced a Bill for an Act to facilitate electronic transactions into Parliament
on 30 June 1999. The Electronic Transactions Act (1999) (Cth) received Royal Assent in December 1999 and commenced by Proclamation
on 15 March 2000. It would appear to remove all uncertainty associated with the implied, as opposed to express, character of the
validity of electronic bills and notes under the existing legal framework. Section 4 of the Act reads:
For the purposes of a law of the Commonwealth, a transaction is not invalid because it took place by means of one or more electronic
communications.
The following requirements imposed under a law of the Commonwealth can be met in electronic form:
(a) a requirement to give information in writing;
(b) a requirement to provide a signature;
It would appear that the Act resolves the two main areas of concern regarding the enforceability of electronic bills and notes, namely,
whether these two types of negotiable instruments satisfy the writing and signature requirements under the Bills of Exchange Act
(1909) (Cth). Insofar as the evidentiary value of electronic bills and notes is concerned, the Act (see subsection 13(5)(a)) does
not affect the operation of the Evidence Act (1995) (Cth).
- This article has established that legislation for electronic bills and notes would be both desirable and feasible. As the drafting
of the Electronic Transactions Act (1999) (Cth) would appear to attest, the Commonwealth Government has been so persuaded by the
universal merits of this thesis that it has enacted legislation for electronic transactions in general. Nonetheless, there is a danger
that the Government may have a different view with regard to electronic bills and notes.
- Section 13(3) of the Act states: "[t]he regulations may provide that this Division [i.e. Division 2], or a specified provision of
this Division, does not apply to a specified law of the Commonwealth". The Act has a two-step implementation process. Prior to 1
July 2001, the Act will only apply to laws of the Commonwealth specified in the Regulations. After that date, the Act will apply
to all laws of the Commonwealth unless they have been specifically excluded from the application of the Act. The first and second
set of Electronic Transactions Regulations have been made and are now in operation. Subsequent regulations will be made as Departments
and agencies continue to opt in to the first phase of the implementation process. The Bills of Exchange Act (1909) (Cth) is not specified
in either of the two sets of Electronic Transactions Regulations which are now in operation. The current state of the law appears
to be consistent with the growing perception within Government circles that electronic bills and notes will never inspire in the
business community the same degree of confidence enjoyed by their paper-based counterparts and that, perhaps, it would be best if
the status quo of uncertainty were to prevail. Such a perception would appear to be in conflict with the technologically neutral
position reflected by the Act, a position that permits "... parties to take advantage of the available electronic technology while
permitting those who wish to continue to use traditional practices to do so".[19] At any rate, it is possible that the Bills of Exchange Act (1909) (Cth) is specifically excluded from the application of the Act.
And, even if the Bills of Exchange Act (1909) (Cth) were not specifically excluded, it is unlikely that the Act will apply to it
until after 1 July 2001.
- Given these two possibilities, private parties would be well advised to make alternative arrangements for regulating the use of electronic
bills and notes.[20] For example, subject to case and statute law, parties could incorporate a facsimile of the UNCITRAL Model Law into their agreement,
thereby overcoming any uncertainty associated with the existing legal framework. If such practice were to become widespread, it could
well become absorbed into the lex mercatoria.
- By way of conclusion, one could state with reasonable confidence that it would be both desirable and feasible to legislate for electronic
bills of exchange and promissory notes. The fact that an Act to remove legal impediments to electronic commerce commenced by Proclamation
on 15 March 2000 supports that conclusion. The benefits that would flow from the enactment of such legislation would greatly outweigh
any costs that would be incurred.
[1] Australia, House of Representatives, Electronic Transactions Bill 1999: Explanatory Memorandum (1999), pp 7 - 9.
[2] Australia, House of Representatives, Electronic Transactions Bill 1999: Explanatory Memorandum (1999), p 7.
[3] Frequently Asked Questions [Internet - http://www.law.gov.au/publications/ecommerce/faq.html (accessed 18 August 2000)].
[4] L. Gamertsfelder, "Electronic Bills of Exchange: Will the Current Law Recognise Them?", (1998) 21 (2) University of New South Wales Law Journal, 568. See too writing in s4 of the Bills of Exchange Act (1909) (Cth).
[5] (1884) 10 VLR 322. See also Saunders v Pirie and Cripps [1961] (SR(NSW)) 387 per Brereton J and sub 97(1) of the Bills of Exchange Act (1909) (Cth).
For the line of English authority, see R v Kent Justices (1873) LR 8 QB 305 and Morton v Copeland [1855] EngR 539; (1850) 16 CB 517, 535. See too J.S. James, Stroud's Judicial Dictionary (Sweet & Maxwell, London, 1986), p 2431 and J. Vaughan, T. Sewards and
R. Kelso, Study of the Law of Internet Commercial Transactions: Issues Analysis (CIRCIT, Melbourne, 1997), p 34.
[6] Teletyped signatures were deemed acceptable in Torrac Investments Pty Ltd v Australian National Airlines (1984). See UCP 500 20(b)
on electronic or encrypted signatures.
[7] A. McCullagh, "Legal Aspects of Electronic Contracts and Digital Signatures" in A. Fitzgerald, B. Fitzgerald, P. Cook and C. Cifuentes
(eds.), Going Digital: Legal Issues for Electronic Commerce, Multimedia and the Internet (Prospect Media Pty Ltd, St Leonards, 1998),
p 118; B. Schneier, Applied Cryptography: Protocols, Algorithms and Source Code in C (2nd ed, Wiley, New York, 1996), chapters 19
- 21; A. Tyree, PINs and Signatures [Internet - http://www.law.usyd.edu.au/~alant/inchoate.html (accessed 18 August 2000)], 9; and, J. Vaughan, T. Sewards and R. Kelso, Study of the Law of Internet Commercial Transactions: Literature
Review (CIRCIT, Melbourne, 1997), p 29.
[8] "... a set of internationally acceptable rules designed to remove a number of legal obstacles to the use of electronic communications
for the communication of legally significant information, creating a more secure legal environment for electronic commerce". See
Australia, House of Representatives, Electronic Transactions Bill 1999: Explanatory Memorandum (1999), p 1.
[9] Gamertsfelder (n 4), 572. See United Nations, United Nations Commission on International Trade Law, UNCITRAL Report on Electronic
Data Interchange: Preliminary Study of Legal Issues related to the Formation of Contracts by Electronic Means (18 May 1990) and B.
Wright and J.K. Winn, The Law of Electronic Commerce: EDI, Fax, and E-Mail: Technology, Proof and Liability (Aspen Law and Business,
New York, 1998).
[10] R.A. Brown, The Laws of Australia (The Law Book Co, Sydney, 1996), 16.6.
[11] Gamertsfelser (n 4), 575.
[12] Gamertsfelser (n 4), 575.
[13] [1996] HCA 48; (1996) 186 CLR 140, 200. See Theophanus v Herald & Weekly Times [1994] HCA 46; (1994) 182 CLR 104, 173 and Street v Queensland Bar Association [1989] HCA 53; (1989) 168 CLR 461, 537 (per Dawson J).
[14] See C.N. Faerber, "Book versus Byte: The Prospects and Desirability of a Paperless Society", (Spring 1999) 17 John Marshall Journal of Computer and Information Law, 797.
[15] Australia, House of Representatives, Electronic Transactions Bill 1999: Explanatory Memorandum (1999), p 8.
[16] Australia, House of Representatives, Electronic Transactions Bill 1999: Explanatory Memorandum (1999), p 8.
[17] Australia, House of Representatives, Electronic Transactions Bill 1999: Explanatory Memorandum (1999), p 9.
[18] Australia, House of Representatives, Electronic Transactions Bill 1999: Explanatory Memorandum (1999), p 9.
[19] J.A. Newell and M.R. Gordon, "Electronic Commerce and Negotiable Instruments (Electronic Promissory Notes)", (1995) 31 Idaho Law Review, 819.
[20] Gamertsfelder (n 4), 576.
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